M/s K.K. Enterprise, Rajkot V. The Assistant Commr. of Income Tax, Cen. Cir.-1, Rajkot

ITA 434/RJT/2017

AI Insights

The case involves cross-appeals by the Revenue and the assessee, M/s. K.K. Enterprise, against the order passed by the Commissioner of Income-Tax (Appeals)-4, Ahmedabad, pertaining to the assessment year 2013-14. The primary issue was the treatment of cash deposits in the assessee's bank account amounting to Rs.3,05,57,669, which were added as unexplained income by the AO following a search operation under section 153A of the Income Tax Act, 1961. The CIT(A) reduced the addition after considering the withdrawals but upheld the business income characterization. The Tribunal agreed with the assessee's characterization as a shroff/angadia, limiting the taxable income to the commission earned rather than the entire cash deposits.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133690 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-11-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 04-12-2017
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Business income; Loose papers; Opportunity of being heard; Peak credit; Set aside
• Section: 153A

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, राजकोट 瀈यायपीठ 瀈यायपीठ瀈यायपीठ 瀈यायपीठ, , , , राजकोट IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted Through Virtual Court) BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER ITA No.419/RJT/2017 Assessment Year :2013-14 The ACIT, Cent.Cir.1 Rajkot. Vs. M/s.K.K. Enterprise C/o.SADP& Co., CAs. BB House, 5-College Wadi Nr.Kathiyawad Gymkhana Rajkot 360 001. PAN : AAFK 3153 D ITA No.434/RJT/2017 Assessment Year :2013-14 M/s.K.K. Enterprise C/o.SADP& Co., CAs. BB House, 5-College Wadi Nr.Kathiyawad Gymkhana Rajkot 360 001. PAN : AAFK 3153 D Vs. The ACIT, Cent.Cir.1 Rajkot. अपीलाथ / (Appellant) यथ /(Respondent) Assesseeby : None Revenue by : Shri Shramdeep Sinha, ld.CIT-DR स ु नवाई क तार ख/Date of Hearing : 28/11/2022 घोषणा क तार ख /Date of Pronouncement: 22/02/2023 आदेश/O R D E R PERANNAPURNA GUPTA, ACCOUNTANT MEMBER These are cross-appeals filed by the Revenue and the assessee against order passed by the ld.ld.Commissioner of Income-Tax (Appeals)-4, Ahmedabad [hereinafter referred to as “ld.CIT(A)”] dated ITA No.419/RJT/2017 & 434/RJT/2017 2 27.9.2017 under section 250(6) of the Income Tax Act, 1961 ("the Act" for short)pertaining to Asst.Year 2013-14. 2. At the time of hearing, none appeared on behalf of the assessee despite service of notice. It is noted from the order sheet that the appeal was filed on 30.11.2017, thereafter the matter was fixed for hearing on 6.10.2022. However, none appeared on behalf of the assessee, accordingly, the matter was adjourned to 28.11.2022. On this date also none put presence on behalf of the assessee or any application for adjournment was sought. Therefore, due to constant non-appearance by the assessee it was decided to adjudicate the matter ex parte assessee-appellant after hearing the ld.DR and considering the material available on record. 3. Brief facts relating to the case are that search action was conducted on the assessee and notice under section 153A of the Act was issued for assessing income of the assessee. However, the assessee did not participate in the assessment proceedings and accordingly AO made addition of the entire cash deposited in the bank account of Rs.3,05,57,669/- as his income, being unexplained . The matter was carried in appeal before the ld.CIT(A) where pleadings were made on behalf of the assessee stating that he was a mere shroff/angadia facilitating transfer of cash to and from tile manufacturers, and earning only commission income there from; that therefore entire cash deposits cannotbe treated as income. Alternatively, he had also pleaded that since there were deposits and withdrawals from the bank accounts, only peak cash needed to be added. The ld.CIT(A) agreed that entire cash deposits could not be considered in isolation for making addition and the withdrawals from the accounts also needed to be taken note of. Accordingly, he held the addition of total cash deposits made by the AO as excessive. ITA No.419/RJT/2017 & 434/RJT/2017 3 Thereafter, he dismissed the assessee’s contention that he was mere shroff/angadiaand further went on to hold that the cash deposits in his bank account represented his business income and admittedly the assessee being associated with tiles manufacturers, the business related to the same . Accordingly he applied gross profit of tile manufacturers to the tune of 25% to the turnover of the assessee for determining his income liable to tax. The ld.CIT(A) directed the AO to apply a rate of 25% to the total cash deposits which he held represented his business receipts. 4. The Revenue is aggrieved by order of the ld.CIT(A) in holding the addition of entire cash deposit as excessive, while the assessee is aggrieved by order of the ld.CIT(A) rejecting the contention of being a shroff/angadia and only commission therefore be liable totax, buton the contrary, treating entire cash deposits as hisbusiness income and taxing it at the rate of 25% applying GP rate of the tiles manufacture. The grounds raised by the Revenue and assessee are as under: By Assessee: 1. Confirming addition to the extent of Rs. 91,67,301/- 2. Contending that the appellant is not a shroff/ angadia but partner in ceramic business without appreciation the facts and evidences available on the records. 3. Adopting profit margin @25% of the total turnover arbitrarily without brining any evidence/ basis on record instead of @0.50% (i.e. the commission quantum embedded in the deposits) supported by the evidences in form of finding of DGCEI and seized material. 4. Making addition of @5% on account of assumed investment to start business, without any evidence or basis and completely arbitrarily 5. Not considering the finding of Directorate General of Central Excise Intelligence, Ahmedabad (DGCEI), which has been considered and upheld by the Commissioner of Central Excise & Custom in appellate matters under the relevant act. Moreover, the finding of the DGCEI has made basis for the purpose of initiating search proceeding/ reopening of assessment proceedings against the Tiles Manufacturers and the appellant like shroffs. ITA No.419/RJT/2017 & 434/RJT/2017 4 Further, Hon'ble Gujarat High Court has held re-opening of assessment on the basis of the finding of DGCEI as legal and valid one. 6. Ignoring the fact that in seized material itself the nature of the business of the appellant is revealed as shroff/ angadia along with the quantum of the commission element as well. 7. Not adopting peak balance in the bank account, without assigning any reason thereof. 8. Not giving credit/ benefit of telescopic of intangible additions made (not- adjudicated) 9. Not considering decisions relied upon by the appellant. 10. All the grounds of appeal raised hereunder are without prejudice to one another.” By Revenue: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the 70% of the addition of Rs.3,05,57,669/- made on account of unexplained cash deposit. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 3. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.” 4. We have gone through order of the ld.CIT(A) and we have noted the contentions made by the ld.counsel for the assessee before the ld.CIT(A) which are reproduced at page no.3 to 14 of the order of theld.CIT(A). We have noted there from that the assessee had contended that the search operation was conducted on the assessee on the basis of finding during course of the investigation conducted by the office of the Directorate General of Central Excise Intelligence, Ahmedabad (“DGCEI” for short) in the case of Ceramic Tile manufacturers located at Morbi and other locations of Gujarat. The indepth investigation and search conducted on various tiles manufacturers, their dealers, employees, transporters, mediators, shroff and various documents and loose papers etc. revealed that the tile manufacturers had suppressed their sales and the cash ITA No.419/RJT/2017 & 434/RJT/2017 5 component of the sale was routed back to them through shroffs/angadias for a commission. Based on this entire detailed investigation and report of the “DGCEI”, which revealed the name of the assessee also as a facilitator /shroff for transferring unaccounted cash sales of tiles manufacturers, search was conducted on the assessee also. The contention of the ld.counsel for the assessee therefore was that as per the case of the Revenue also, the assessee was only a shroff/angadia, and therefore, all the cash deposits/ transactions in his bank accounts were on account of dealing as shroff/angadia only; that there was no question of treating the entire cash deposits as belonging to him. We have noted that the assessee had made exhaustive pleadings in this regard giving the background and the finding of the investigation conducted by the “DGCEI”,The Intelligence collected by DGCEI which conclusively revealed the name of the assessee also as one of the shroff/angadia and the consequence of “DGCEI” Investigation ,all of which are contained at para 2.1 to 2.2 of the CIT(A)’s order as under: ITA No.419/RJT/2017 & 434/RJT/2017 6 ITA No.419/RJT/2017 & 434/RJT/2017 7 ITA No.419/RJT/2017 & 434/RJT/2017 8 ITA No.419/RJT/2017 & 434/RJT/2017 9 5. The ld.CIT(A) rejected the assessee’s contention of being shroff/angadia at para 5.4 of his order as under: “5.4 After the findings, given about the excessiveness of the additions made by the A.O., the contentions of the appellant about determining of income by taking commission at the rate of Rs.300 to 350 per lakh are considered below. The contention of the appellant is that he is engaged in Aagadia/shroff business is not found factually correct To run business of Andadia/shroff, license to that effect is required from the appropriate government authorities. To run business of shroff, license under the Money Lending Act is required from the District Collector. As shroff provides services to clients, he has to register under Central Service Tax Act (now modified as GST); But the appellant could not submit any documentary evidence to show which substantiate his contention that he is engaged in the business of Angadia/shroff. In the business of Angadia, details of person who sends money through angadia can be ascertained, as proper record in maintained but in the case of the appellant, details of the person who deposited cash cannot be ascertained. In the case of shroff, sometime cheques is given by the client to the shroff & cash is taken by the client and sometime, cash is given by the client to shroff & cheque is taken. But in the case of the appellant, deposits & withdrawal, both are only in cash. Therefore, this contention of the appellant that he is angadiaor shroff is dismissed. The appellant's another contention is that he charged commission at the rate of 0.05% to 1% & Rs.300 to Rs,350/- per lakh are contradictory. The rate of commission stated by the appellant is not found harmonious with the rate stated by him during the course of search. This proves that the appellant and group concerns earned income more than the income shown in regular returns filed. Therefore, this contention of the appellant is rejected. The appellant's another contention is that he is merely facilitator and the actual beneficiaries are ceramic manufacturers of Morbt, Thanagadh&wakaner etc. and named some of them in his statement ITA No.419/RJT/2017 & 434/RJT/2017 10 u/s.132. The appellant is master of facts and he should have told the whole truth. He should have submitted complete details of person wise transactions, so the department could have taken action to assess income related to these transactions in their hands but the appellant failed to do so during assessment proceedings and even during appellate proceedings. These facts show that the appellant is partner with other black money generators/hoarders. Therefore, the contention that the appellant is earning only commission income on these transactions and real beneficiaries are others, is not found acceptable, hence it is dismissed. The appellant also contended that during the search, only cash of Rs.6840/- and jewellery worth Rs.1.10 lakh was found, which shows, he is person of small means but findings of assets during the course of search is not the only criteria to assess the income of the assessee. All relevant material gathered during the search is to be considered. Thus it is dismissed. The appellant cited CBDT, New Delhi circular, in which, it has been instructed that cases of having probability of high pitched assessment should be monitored by the Range Head. This being a search case, the assessment has been approved by the Range Head as per provisions of the Act. Therefore, there is no violation of the CBDT circular by the A.O. This contention of the appellant is also dismissed for the reasons mentioned above. The appellants another argument that opportunity of being heard has not been granted by the AO Is factually incorrect, as the AO has given specific show cause notice to the appellant before making the additions. The bank accounts are in the name of the appellant & maintained/operated by the appellants and accepted these facts time & again, then onus is upon the appellant to come forward and explain the true nature of transactions but the appellant failed to do so. Therefore, this contention is also dismissed. 6. The basis for the ld.CIT(A), as transpires from the bare perusal of the order, for rejecting the assessee’s contention is very peripheral and technical. He has stated that if the assessee was shroff/angadia, he ought to have obtained license under the Money Laundering Act. He hasfurther gone on to state that if the assessee was shroff/angadia, then he should have details of all persons from whom money flowed. Thereafter, he has gone to note that the interest of the Revenue has to be taken into consideration that since no details of persons from whom money flowed had been furnished by the assessee, therefore, in the interest of the Revenue, the assessee could not be treated as shroff/angadia. It is clearly evident that the ld.CIT(A) has totally ignored the pleadings of the assessee backed with evidence that search was conducted by the “DGCEI” revealing that the assessee was an ITA No.419/RJT/2017 & 434/RJT/2017 11 Angadia involved in providing accommodation entries to the tiles manufacturers, facilitating movement of suppressed cash sales to the tiles manufactures. The ld.CIT(A) does not deny this fact which was pointed to him during appellate proceedings. Therefore, undoubtedly, the Revenue had proceeded to search the assessee on the basis that the assessee was facilitator/ shroff for the tiles manufacturers; facilitating movement of their unaccounted sales in cash. In this background, the ld.CIT(A) holding that the assessee was not a shroff/angadia because he did not have a license under the Money Laundering Act and did not furnish the details of the persons to whom he had lent money, we find is highly frivolous.When the admitted case of the Revenue itself is that the assessee was acting as a facilitator for transferring unaccounted cash sales of tiles manufacturers , the Ld.CIT(A) rejecting the same merely tantamounts to going back and forth by the Revenue on the issue. While on the one hand the case of the Revenue is that the assessee is a mere facilitator of cash being transferred to tile manufacturers ,at the same time they are contradicting the same also by saying he cannot be a facilitator since he is not licensed to do so. Why would a person allegedly involved in transferring cash belonging to tile manufacturers get himself registered /licensed under Money laundering act is beyond comprehension.It is an admitted case even of the Revenue that the assessee was only involved in cash transfers, therefore rejection of this plea of the assessee that only commission be charged to tax by the ld.CIT(A) is contrary to the findings of the Revenue itself on facts and highly unjustified. 7. In view of the above, we agree with the contention that the assessee be taxed only for commission earned. Now the question arises as to computation of commission income earned. For the ITA No.419/RJT/2017 & 434/RJT/2017 12 said purpose in the absence of any reliable basis before us ,w restore the issue to the AO to apply a fair and reasonable basis for determining the commission income of the assessee. 8. In view of the above, the appeal of the assessee is allowed to the extent of agreeing to its plea to be treated as shroff/angadia for the purpose of subjecting only the commission income earned to tax. The computation of the same is restored to the AO with the above directions. Needless to add the assessee be granted due opportunity of hearing by the AO while determining the correct basis for computing the commission income. As for the appeal of the Revenue seeking entire cash deposits to be treated as income of the assessee, the same is dismissed. 9. In the result, the appeal of the assessee is allowed; while the appeal of the Revenue is dismissed in above terms. Order pronounced in the Court on 22 nd February, 2023 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 22/02/2023